An Overview of Mortgage Fees to Avoid

Looking for a new home can be an exciting adventure. Buying a new home can be somewhat less exciting, however, and considerably more complicated. Applying for a mortgage, choosing a mortgage provider and settling on the terms of a mortgage are critical steps to ensuring your dream home doesn’t become a financial nightmare.

One of the least understood and most frustrating parts of the journey to closing on a new home is the long list of fees associated with getting and carrying a mortgage, including the mortgage processing fee, Some of those fees are unavoidable. But consumers can benefit from learning what mortgage fees to avoid and how to avoid them.

What Are Mortgage Fees?

There are two basic categories of mortgages fees: the ones associated with taking on a home loan and those associated with making the payments.

Many of the initial fees assessed when a buyer agrees to a mortgage – known as closing costs – are unavoidable. Those include the appraisals, inspections, title insurance and processing fees meant to cover the cost of administering the application and execution of the mortgage agreement, according to consumer finance website NerdWallet.

Administrative or underwriting fees are also common, but consumer financial advice website Money Crashers suggests if a borrower is going through a mortgage broker and not a bank directly, that fee may be able to be waived. Application fees are among those considered “junk fees,” and can also be avoided if the borrower asks they be waived, Money Crashers notes.

Once a mortgage has been taken, a borrower may face fees for servicing the home loan. Those almost always involve processing for mortgage payments made online or over the telephone and are alternately called convenience fees, speedpay or pay-to-pay fees.

What Are the Mortgage Fees to Avoid?

Taken individually, the fees associated with getting and paying down a home loan might not seem high. Added up though, they can mean thousands of dollars in extra costs to the borrower over the life of the loan. It can be helpful for consumers to know what mortgage fees to avoid, if possible.

The “junk” fees levied at closing might be negotiable if the borrower has a good credit report and requests the fees be waived or discounted, reports Money Crashers. It’s important to read all proposed mortgage agreements closely to identify what fees might be at the lender’s discretion.

Over the life of a home loan, borrowers might get hit with other mortgage fees to avoid for events such as making late payments and the convenience fees charged for making payments online or over the phone.

Even though they are commonly charged, the pay-to-pay fees are not allowed under the terms of many mortgage agreements. So again, borrowers should be careful to read and understand the terms of their contract.

Are Mortgage Loan Processing Fees Legal?

Mortgage processing fees are, for the most part, legal as long as they are disclosed to the borrower in advance. In fact, federal law requires all mortgage providers to generate and present a loan estimate to anyone who has applied for a home loan within three days of receiving that application. The loan estimate must include a detailed list of the costs and fees that the borrower can expect to be charged if they agree to the mortgage.

Some consumers have taken issue with these pay-to-pay fees, saying that charging an extra amount to pay online or by phone is unfair.

These charges can take on a number of different names. Some banks may call them processing fees, while others refer to them as convenience fees. Some consumers claim that banks make the names and nature of these fees intentionally confusing.

By calling these mortgage fees in order to avoid “processing fees,” consumers may infer that these fees are meant to cover the actual costs of processing payments online or over the phone. While many mortgage lenders do include a section in their contracts allowing them to pass on these costs to customers, they are generally prohibited from inflating the costs in order to pocket a profit.

Many pay-to-pay mortgage fees are between $5 and $20, and these fees may be much higher than the actual cost of processing a transaction. According to Payment Depot, the average cost of processing a credit card for merchants is between 1.5% and 3.5% of the transaction. In many cases, it may cost only cents.

Both consumers and the federal government have taken steps to challenge allegedly unfair mortgage fee practices. Consumer Finance explains that the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) have issued warnings to banks that have allegedly pressured customers into paying over the phone in order to extract fees.

The federal Fair Debt Collection Practices Act, other federal laws, and state finance codes prohibit banks from misleading consumers about what debt payment options are available to them, and prohibits banks from threatening customers into making a payment. However, not all banks abide by these regulations.

Some consumers have reported being misinformed about what the fees were for, or were pressured into paying them. Other consumers have reported only being informed about payment options that came with processing fees, when free options were also available. While it may be legal in some cases for mortgage lenders to charge processing fees, lying to consumers in an effort to collect these fees is prohibited.

Mortgage customers allege that banks use these tactic to get customers to make payments over the phone or online. A payment made by phone may process faster than a payment made online, so some customers may choose to use this options under certain circumstances, like looming due dates. However, mortgage lenders should not pressure customers to choose an expedited payment option that comes with additional fees when they do not actually need their payment to be posted expeditiously.

Identifying what is required of you as a borrower can be important when trying to understand what mortgage fees to avoid. Banks should not trick a customer into thinking that they have to make a payment immediately if this is not true, and should not mislead a customer into thinking that paying by phone is their only option. Unfortunately, customers have claimed that they have been cornered into paying in a method that came with a fee, even when it was unnecessary.

How Can You Avoid Mortgage Loan Processing Fees?

Most home loan processing fees are standard. The best way to avoid paying excessive processing fees is to shop around for the best mortgage terms before committing to a specific lender and to question each fee before signing. The lender won’t always negotiate on fees, but it can’t hurt to ask.

Shopping for a Mortgage Lender

Indeed, shopping around for a lender may help consumers dodge processing, service, and other mortgage fees. It can be daunting to shop for a lender, especially for first-time homebuyers. The Federal Trade Commission has a few tips.

First, the agency recommends looking at several different lenders. Mortgages are available from a number of financial institutions, including banks, credit unions, and mortgage companies. Each may offer different prices, so the FTC recommends contacting several before making a choice.

In addition, consumers shopping for a mortgage should be sure to obtain the following from each lender, says the FTC:

• Interest and Annual Percentage Rates and if the rate is fixed or adjustable
• Points or fees paid to the lender and linked to the interest rate
• A fee estimate
• Down payments and if Private Mortgage Insurance, or PMI, is required

Once a consumer has this information from several different mortgage lenders, they should compare them and pick the best for their situation. Mortgage lenders should be able to break down and explain all the costs associated with the loan, says the FTC. Additionally, consumers should not be afraid to negotiate the terms of their mortgage. Brokers and lenders can often shuffle fees and rates to come up with a better offer. It can be helpful to have a competitor’s offer on hand to see if a mortgage lender can meet or even beat it.

“Don’t be afraid to make lenders and brokers compete with each other for your business by letting them know that you are shopping for the best deal,” says the FTC.

Can You File a Lawsuit for Illegal Mortgage Fees?

When it comes to convenience fees on existing mortgages, some borrowers have taken legal action to fight what they call unfair business practices. Borrowers in Texas, California and Florida have taken their mortgage companies to court over fees they were charged for making home loan payments over the phone or online.

In 2020, Ocwen Loan Servicing and PHH Mortgage Corp. agreed to pay $12.5 million to a class of plaintiffs who accused the financial institutions of charging excessive fees when customers paid their mortgages online or by phone.

Consumers who have been improperly charged mortgage fees may consider taking legal action if all other attempts to recoup the money have failed. Battling with a mortgage company can be intimidating and complex. Consulting a qualified, experienced attorney who deals with mortgage-related cases is one way to determine the best course of action; as each case is different, a lawyer can review individual circumstances to help consumers decide if they have grounds to file a lawsuit over mortgage fees.

Join a Free Mortgage Payment Fee Class Action Lawsuit Investigation

If you were charged a convenience fee for paying your mortgage online or over the phone, you may qualify to join this mortgage payment fee class action lawsuit investigation.

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This article is not legal advice. It is presented
for informational purposes only.